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Rallying Retailers Nudge Dow to Fresh Highs

After a day of ambivalence, Wall Street rode a wave of late-day buying fueled by soaring retail stocks to close at fresh 2-1/2-year highs on Thursday amid growing signs the economic recovery is accelerating.

Today's Markets

The Dow Jones Industrial Average rose 20.29 points, or 0.17%, to 12062.26, the Standard & Poor's 500 gained 3.07 points, or 0.24%, to 1307.10 and the Nasdaq Composite advanced 4.32 points, or 0.16%, to 2753.88. The FOX 50 picked up 1.12 points, or 0.12%, to 931.26.

There was no shortage of ammo for the bulls to use to call for higher stock prices as Fed chief Ben Bernanke sounded more bullish on the economy and new data revealed the U.S. service sector expanded at the fastest pace in more than five years, weekly unemployment claims tumbled and factory orders unexpectedly grew.

But most of the credit for Thursday's mini rally, which erased an early 60-point decline on the Dow, can go to soaring retailers like Gap (GPS) in the wake of surprisingly strong January same-store sales from a slew of companies.

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Wall Street also managed to overcome another day of jitters about tumultuous Egypt, which continues to be a huge question mark in the eyes of investors.

“I’m a little puzzled by the resiliency of the market considering the powder keg that is building in the Middle East,” said Jason Weisberg, a NYSE trader and senior vice president at Seaport Securities. “If we could back the geopolitics out of the equation, I think the Dow would be up another 500 points.”

Closing in the green for the fourth day in a row, the Dow landed at its highest level since June 2008. The benchmark index was driven higher by Pfizer (PFE) and Cisco Systems (CSCO). Its weakest links were Microsoft (MSFT) and Merck (MRK).

Consumer discretionary stocks carried Wall Street over the hump as the markets cheered a 4.2% leap in January same-store sales that blew away consensus calls for a rise of just 2.7%. Costco (COST), Limited (LTD) and Gap were among the biggest winners, while retail giant Target said its January same-store sales rose 1.7%. The stronger-than-expected results show retailers were able to battle widespread snow storms and consumers were healthy enough to boost spending.

“The bar was set pretty low. Given how underperforming the group has been, they were due for a little bit of a snapback,” said Michael James, managing director of equity trading at Wedbush Securities.

On the economic front, the Institute for Supply Management said service-sector activity in the U.S. soared in January to its best level since August 2005. The ISM non-manufacturing index jumped to 59.4, up from 57.1 in December and above forecasts for 57.0. New orders rose to 64.9, but in a sign of possible inflation, the prices paid component climbed to September 2008 levels.

Just a day before the Labor Department's crucial monthly jobs report, the government said initial jobless claims tumbled by a steeper-than-expected 42,000 last week to 415,000. Continuing claims slid below the 4 million mark, declining by 84,000 to 3.93 million.

Elsewhere, the Commerce Department said factory orders grew 0.2% in December, marking the fifth gain in six months and surprising analysts who had predicted a 0.5% drop. Also, the government said non-farm productivity jumped 2.6% in the fourth quarter, exceeding calls for a rise of 2%. Non-farm unit labor costs unexpectedly fell 0.6% in the fourth quarter.

Wall Street also received a boost from Bernanke as the chairman of the Federal Reserve sounded a bit more upbeat about the U.S. economy amid rising consumer spending and improved bank lending. Bernanke remains unconcerned about inflation despite jumps in commodity prices. In response to his first questions from reporters in two years, Bernanke said recent unemployment claims figures have been "pretty good" and he expects better results soon.

Traders continue to keep an eye on the situation in Egypt, which has been paralyzed by protests that have left more almost 900 injured and at least five killed since Wednesday. President Hosni Mubarak has refused to step down despite more than a week of huge protests that have caused serious economic damage.

However, Wall Street's fears that the unrest in Egypt could spill over to other oil-producing nations like Saudi Arabia or hurt the global economy by causing crude oil to spike have not yet materialized. In fact, after two days of surging due to concerns about the Middle East, crude oil has largely stabilized. Crude closed down on Thursday 32 cents a barrel, or 0.35%, to $90.54. Gold jumped $20.80 a troy ounce, or 1.56%, to $1,352.30.

After seeing some early selling pressure, Wall Street managed to shrug off the U.S. dollar, which surged against rivals in response to the bullish domestic news. A stronger dollar tends to weigh on multinationals that rely on exports and dollar-traded commodities.

Corporate Movers

BJ's Wholesale Club (BJ) surged 12% after opening the door to a possible sale. The wholesaler said it is talking to Morgan Stanley (MS) about its strategic options, including possibly accepting a buyout. Last month the New York Post reported private-equity firm Leonard Green & Partners was mulling a bid. BJ's said its same-store sales rose just 0.3%, excluding gasoline.

Merck (MRK), which was the only Dow component to report results, slumped 2.5% as its fourth-quarter earnings beat was overshadowed by a cautious 2011 outlook and an abandoned long-term view.

MasterCard (MA) revealed a stronger-than-expected 41% leap in fourth-quarter profits on an 11% jump in revenue to $1.44 billion.

Dow Chemical (DOW) benefited from an 12% jump in volume, posting a stronger-than-expected non-GAAP profit of 47 cents a share on an 11% rise in sales to $13.77 billion.

Kellogg (K) reported an in-line 7.4% rise in fourth-quarter profits despite a 1.4% slide in revenue to $2.86 billion. The cereal maker also stood by its 2011 guidance.

CVS Caremark (CVS) said it earned 80 cents a share on a non-GAAP basis, exceeding estimates by a penny. The drug store operator said its revenue fell to $24.8 billion, trailing the Street's view.

ITT Corp. (ITT) posted a profit of $1.46 a share on a continuing basis, beating consensus calls by 20 cents. ITT said its revenue rose by an in-line 8% to $3 billion.